Let’s prepare for a Soft Brexit

Dr. Julian Pänke, University of Birmingham

Prime Minister Theresa May seems eager to pursue a full Brexit. However, a number of decisive factors make a soft Brexit the more likely option. The UK and the EU could maintain close institutional relations, most likely in the framework of the European Economic Area (EEA), following the model of Norway.

It’s been around seven weeks since the shock of Brexit. German foreign minister Frank-Walter Steinmeier spoke of “regret, puzzlement and disappointment across Europe” and called the decision “a turning point, a historic watershed.”1 Initial worries of a procrastinated government formation in Westminster were unjustified. Much quicker than anticipated Theresa May appeared as successor of David Cameron as Prime Minister. With a major reshuffle of the cabinet she has now stunned the British and European audiences. The new Prime Minister gave three key positions in government to seemingly die-hard Brexiteers: David Davis was named Secretary of State for Exiting the European Union, former Defense Secretary Liam Fox is the newly established International Trade Secretary and, most surprising of all, the former head of the Leave campaign, Boris Johnson, became Foreign Secretary. May seems eager to live up to her promise “Brexit means Brexit” and to get on with things. Her appointments suggest a full Brexit. On the contrary, I will argue that we should rather prepare for a Soft Brexit – the maintenance of close institutional relations between the UK and the European Union, most likely in the framework of the European Economic Area (EEA) following the model of Norway.

Speaking on behalf of the EU, German Chancellor Angela Merkel reminded London of the main task ahead, namely that the UK needs to clarify, rather sooner than later, what the future relationship with the Union should look like.2 May’s mantra “Brexit means Brexit” is not helpful in that regard as Brexit can appear in many shapes and sizes. The options available have not really been discussed in detail due to the open leadership contest within the British Conservative party. At the same time, the Labour party appears on the verge of self-destruction and unable to agree on a coherent ,EU-ropean’ policy that reconciles its “pro-European instincts with its voters’ dislike of free movement”.3 The decisive question May’s government now has to tackle is how much freedom of movement would the UK be willing to accept for continuing membership in the Single Market?Basically, there are three roads to travel: hard, soft or no Brexit. After introducing them briefly, I will argue why a Soft Brexit appears as the most likely outcome.

Hard Brexit

In light of the appointments of the Brexiteers’ trio – David, Fox and Johnson, it seems that Theresa May is preferring a Hard Brexit. In the words of new Chancellor Philip Hammond, this option implies the UK not remaining in the Single Market and removing itself quickly from the EU. Brexit minister Davis suggested Article 50 of the Treaty on European Union to be triggered by the end of the year and in a brash attempt to soothe the nervous markets ambitiously predicted bilateral trade deals to be signed within 12 to 24 months. Hard Brexit suggests the UK to embrace either the Canada or WTO model. Within the Canada model, essentially proposed by David and Fox, the UK would negotiate a similar free trade agreement with the EU as currently negotiated with Canada. The Comprehensive Economic and Trade Agreement (CETA), while aiming to reduce most regulatory and tariff barriers, still excludes some goods and key service sectors – e.g. from a British view vital financial services. Furthermore, one has to bear in mind that the EU shapes the rules and Canada must accept them. Moreover, negotiations have lasted seven years already and are still not concluded. The WTO model would represent the hardest Brexit as UK-EU trade relations would be governed by the rules of the World Trade Organisation (WTO). Being no part of the Single Market, UK exports would be subject to its Common Tariffs.Nevertheless, only both versions of a Hard Brexit allow Britain to regain full control of its immigration polices and “take back control” of the country, as the Leave campaigners have promised.

Soft Brexit

A Soft Brexit would mean keeping the UK in the Single Market as much as possible while at the same time gaining concessions on migration of EU nationals to Britain. This option is the preferred outcome of the Tory Remain campaigners and the Whitehall civil servants as it would calm the markets and minimise the disruptive fallout of the referendum result. Two European nations adopted this model in their relationship with the Union: Norway and Switzerland. Like Norway (along with Iceland and Liechtenstein) Britain could join the EFTA and the European Economic Area (EEA). EEA countries are full members of the Single Market while paying into the EU budget, abiding by EU rules, and crucially, accepting the freedom of movement. Commentators have therefore been hesitant to suggest the Norway model to London. Norway is in fact the ninth biggest contributor to the Union’s budget but has no formal say in the EU institutions. Under a potential “EEA-minus” arrangement allowing for more flexibility on free movement it might turn out to be the only viable option available. The Swiss model, which implies that the UK would merely join the European Free Trade Area (EFTA) and negotiate a series of bilateral treaties, is very time consuming and hence unrealistic. It took Brussels and Switzerland decadesto agree on more than 100 specific agreements for various goods and services. Despite not paying financial contributions, the Swiss still had to accept the free movement of persons. Even worse, as it is a purely bilateral arrangement, a decision such as the February 2014 Swiss referendum result which foresees quotas for all migrants in Switzerland – if implemented – could terminate all bilateral agreements with the Union.

No Brexit

Retaining full EU membership is clearly outside of May’s expressedinterests, but nevertheless an option. It is worth remembering that the referendum result is not legally binding and the ultimate sovereignty rests with the Parliament, which also would need to ratify any withdrawal agreement from the EU. Both, the House of Commons and House of Lords could vote against it. Additionally, a petition for a Second Referendum gathered 4.1 million signatures and will lead to a parliament debate on 5 September.4 A third scenario could see a snap general election and Tory Prime Minister May losing against a potential coalition of Labour and the Liberal Democrats, which position themselves in favour of a Second Referendum, respectively simply for remaining in the EU to avoid endangering the cohesion of the United Kingdom. Tim Farron, leader of the Lib Democrats, argued that a ‘coronation’ of Theresa May as Prime Minister ‘carries no mandate’.5 But all three scenarios are highly unlikely and Theresa May has re-emphasised that after general elections in May 2015 and the referendum she will not call a snap general election. Still, the idea of a Second Referendum as fallback option might reappear if the economic situation further deteriorates. It was Leave campaigner Johnson himself who, by stating that “all EU history shows that they only really listen to a population when it says No”, suggested a Second Referendum if Brussels appears willing to compromise.6

Why a Soft Brexit is the most likely outcome

Three arguments support a Soft Brexit within an “EEA-minus” framework as the most likely outcome.

First, the process of withdrawing from the Union, as spelled out in Article 50 of the Treaty on European Union, suggests to both involved parties, the UK and the Union, to seek the least painful and time consuming exit in form of British EEA-membership. EU Trade Commissioner Cecilia Malmström recently pointed out that “There are actually two negotiations. First you exit, and then you negotiate the new relationship, whatever that is.”7 The timeframe for the first stage of negotiations is two years. But Article 50 also stipulates that while “setting out the arrangements for […] withdrawal”, thus disentangling the UK and EU, the “framework for its future relationship with the Union” may be taken in account.8 Within the EEA-framework the UK would remain part of the Single Market and therefore the disentangling process would be less comprehensive and therefore much easier and quicker. With the examples of Canada and Switzerland in mind, decade long negotiations is something both sides cannot afford. The time argument is further strengthened by the fact that – as external trade was the sole competence of Brussels – the UK simply lacks the civil servant staff required to lead such intensive trade negotiations. In this light the ambitious 12-24 months trade agenda announced by Davis appears naïve at best and his suggestion that the EU will grant Britain tariff free access to the Common Market in its own rational self-interest misreads the power dynamics in their relationship.

Second, despite EU and member state officials currently emphasising that membership in the Single Market is inseparable from the free movement of people, an emergency clause in the EEA Agreement actually allows for some flexibility in that matter. Articles 112-3 of the EEA Agreement could be utilised to allow the UK to substantially reduce levels of immigration. The articles refer to “’Safeguard Measures’ which permit the parties unilaterally to take ‘appropriate measures’ if serious economic, societal or environmental difficulties of a sectoral or regional nature arise and are liable to persist” as Richard North pointed out as early as two years ago.9 With the aim of keeping specific restrictions on the free movement of people these measures had been invoked by Liechtenstein in the past.10 In an effort to calm the situation, EU-ropean politicians are obviously not very keen at present to discuss this clause publicly but it does offer the most realistic option to ease the tension between Single Market membership and migration control. Additionally, by remaining part of the Common Market, EEA-membership has the potential to accommodate worries about Scottish independence and tensions in Northern Ireland as negative repercussions of a full Brexit.

Third, Theresa May’s cabinet reshuffle suggests that she is calculating if not even anticipating a Soft Brexit outcome. She was a Remainer in the end, despite her controversial remarks on the status of EU nationals in the UK as bargaining chip in the upcoming negotiations. Her uncompromising comments appear in retrospect as strategic move to secure the Tory leadership by avoiding to be “outflanked to her right on the emotive issue of immigration”.11 One can imagine Davis and Fox quickly being forced to revoke their Hard Brexit ambitions as they do not withstand the reality check. This inconvenient truth has to be communicated by leading Brexiteers. Anything else would be a disaster for the legitimacy of the negotiating process. This leaves us with Johnson as Foreign Secretary. After the referendum he already appears to have eaten humble pie by promoting “intensified” relations with Europe, seeking to guarantee the rights of EU nationals living in the UK and acknowledging that the referendum result of 51.9 per cent to 48.1 per cent was “not entirely overwhelming”.12 Even more importantly, in times where foreign policy is increasingly the domain of the heads of government any of his usual goof-ups should not cause much harm.

Thus, for the first time in three weeks, I am slightly more optimistic about the future and more confident that the new British government and the EU will succeed in keeping the estrangement of Brexit to the minimum.